The credit rating assigned to the Tomsk Region (hereinafter – the Tomsk Region, the Region) is determined by a comparably high level of debt load in relation to its operating balance coupled with a low risk of debt refinancing, limited flexibility of budget expenditures together with moderate indicators of regional economy development as compared to the country average.
The Tomsk Region is located in the Siberian Federal District. 0.7% of the Russian population live in the Region; it accounts for 0.7% of the total gross regional product (GRP) of Russia. Almost one third of the regional territory lacks population due to the large area of wetlands and forests. Tomsk is a major educational center; hence, the Tomsk Region in terms of the number of students per 10 thousand inhabitants ranks third among Russian regions after Moscow and St. Petersburg.
Key rating assessment factors
High relative debt load with a comfortable debt repayment schedule. The ratio of debt to operating balance is expected to be at 3.3x at the end of 2018 as compared to 3.5x at the end of 2017. The expectedly lower ratio (caused by growing operating balance boosted by higher income tax revenue) will still indicate a significant level of risk. As of October 01, 2018, the debt repayment schedule implied annual repayments not exceeding 20% of the total liabilities, which indicates a low refinancing risk pushed down by the use of all available instruments. The debt load and budget figures will depend on the dynamics of income tax revenues, the volatility of which is explained by the dynamics of the mining sector (the main contributor to the Region's GRP) and related industries.
Low flexibility of budget expenditures and budget dependence on a dominant industry. In 2015–2018, the Region's budget indicators have been depending on income tax revenues, the volatility of which is caused by a number of factors, including the presence of taxpayers that are part of the consolidated group of taxpayers (CGT); tax overpayments and subsequent tax refunds (in 2017, these two factors contributed to a 34% decrease in revenues); dynamics of the ruble price for oil (in the past period of 2018, the price has been at maximum levels). Taking into account the oil price factor, ACRA assesses highly probable the growth of total income tax revenues by 20% expected by the Region in 2018 (the mining sector provides about 20% of revenues). In particular, in the seven months of 2018, the total amount of the mentioned revenues increased by 28% y-o-y, while revenues in a single industry (mining), according to ACRA estimated, increased by 20% in 2018.
Decreasing income tax revenues pushed the share of the Region's own revenues1 down from 84 to 79% in 2015–2018, and due to permanently high mandatory expenditures (75%), the operating balance fell to 17% (against 20% and 23% in 2015 and 2016, respectively). In case the target income tax revenues are attained, the operating balance will increase to 17% by the end of 2018. The share of capital expenditures has been stable at 10–11% of budget expenditures.
1 Ratio of tax and non-tax budget revenues to total budget revenues minus subventions
Key assumptions
- Attainment of tax revenue targets in 2018;
- A responsible budget policy, aimed at realistic planning of own revenues.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Increase in tax base pertaining to income tax in case of a positive economic effect of measures offered by the Region Administration to increase the production rates of mature oil fields;
- Achievement of a stable operational balance to regular income ratio of no less than 20%;
- Monetization of the Region’s scientific and research potential accompanied by an increase in tax revenues and social and economic indicators;
- Lower reliance on external sources of liquidity.
A negative rating action may be prompted by:
- A shift of the Region’s debt book maturity profile towards short-term debt instruments;
- Lower regular revenues amid stable expenditures in 2018-2020;
- Non-fulfillment of the action plan aimed at increasing tax and non-tax revenues in 2018–2020, associated with deterioration of the Region's own liquidity.
Issue ratings
Tomsk Region, 34048 (ISIN RU000A0JUCZ6), maturity date: December 18, 2018, issue volume: RUB 5 bln — BBB(RU);
Tomsk Region, 34055 (ISIN RU000A0JW1K9), maturity date: June 19, 2023, issue volume: RUB 7 bln — BBB(RU);
Tomsk Region, 34062 (ISIN RU000A0ZYMJ7), maturity date: December 19, 2024, issue volume: RUB 7 bln — BBB(RU).
Credit rating rationale. In ACRA’s opinion, the above bonds issued by the Tomsk Region are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Tomsk Region.
Regulatory disclosure
The credit ratings have been assigned to Tomsk Region and to bonds issued by the Tomsk Region (RU000A0JUCZ6, RU000A0JW1K9, RU000A0ZYMJ7) under the national scale for the Russian Federation based on the Methodology for Credit Rating Assignment to Regional and Municipal Authorities of the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. In the process of credit rating assignment to the above issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.
Credit ratings assigned to the Tomsk Region and to issues of government securities of the Tomsk Region (RU000A0JUCZ6, RU000A0JW1K9, RU000A0ZYMJ7) were first published by ACRA for the first time on April 10, 2018.
The credit rating of the Tomsk Region and its outlook as well as the credit ratings of government securities issues of the Tomsk Region (RU000A0JUCZ6, RU000A0JW1K9, RU000A0ZYMJ7) are expected to be revised within 182 days after the rating action date (October 5, 2018) in compliance with the Calendar of planned sovereign credit rating revisions and publications.
The credit rating was assigned based on the data provided by the Administration of the Tomsk Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited, and the Administration of the Tomsk Region participated in its assignment.
No material discrepancies between the data provided and the data officially disclosed by the Tomsk Region in its financial report have been discovered.
ACRA provided no additional services to the Administration of the Tomsk Region. No conflicts of interest were discovered in the course of credit rating assignment.
